“If sustainability is so good, why aren’t all businesses doing it?”
John ThwaitesChairman, ClimateWorks Australia
4 August 2010Business and Higher Education Roundtable
Sustainability: Opportunities for business
• Clean energy, low carbon and sustainability
– Renewable energy
– Energy efficiency
– Sustainable water systems
– Green buildings
– Waste and recycling
– Vehicle efficiencies and technologies
– Farm technologies and services
– Carbon market services
• 500,000 new green jobs could be created in six sectors by 2030 in Australia- ACTU/ACF Report 2008
Business Opportunities - World
World
• Venture capital and private equity investment in clean energy increased by nearly 2000% between 2003 and 2008
• Renewable energy sector grew faster than conventional sources in 2009
• Market for low carbon and environmental goods and services now worth $6 Trillion
All businesses can benefit from sustainability
• Reduce waste and increase productivity
• Reduce energy and water bills
• Marketing advantage
• Reputation advantage - social ‘license’ “green door”
• Investors and financiers will prefer investment in sustainable, low emission development
• ‘ready’ for carbon constrained future and tougher regulation
Green buildings make sense for business
• Lower annual operating costs -
• Better working conditions and staff productivity
• Marketing advantage and higher rents
• Reputation
Financial Incentives for green buildings
• Green Buildings fund - grants $50k to $500k
– Grants to owners of existing buildings for retrofitting projects e.g. HVAC, lighting and heating
• Australian Carbon Trust
• Tax breaks for Green Buildings
Some companies are leading the way
Some improvements are underway- water
QenosAltona already achieved 30 % water savings – 1.3 billion litres
Further use of recycled water to take this to 90 % water savings
Some improvements are underway- water
Waterless woks
Restaurant saves 12,000 litres per day
Overall non-residential water consumption has reduced more than 40 % compared to the 1990’s
Some improvements are underway- carbon
MtCO2e per annum
SOURCE: Department of Climate Change (2009); Australian Greenhouse Office (2006)
Aug 2009forecast(DCC)
664
Non-energy sector changes4
Change in economicassumptions and trends3
Cleaner fuel mix (e.g. RET)2
Energy efficiency measures1
Dec 2006forecast(AGO)
702
-5%
1 Includes measures such as phase out of electric hot water heaters, sustainable housing and insulation rebate2 Includes impact of the Renewable Energy Target (RET) which increases the use of renewable sources of energy, and an increased use of gas3 Includes impact of a decrease in power generation growth and power station emissions intensity 4 Includes mainly changes in land use and forestry
But most companies are not taking much action
Survey of 1,600 SME owners in two phases Sept 2009 and April 2010
The majority (77% and 69%) of SME’s say they are willing to take actionBUT most are doing very little.Sustainability Index 14.1% (2009) to 12.6% (2010)
Reasons for lack of actionDon’t trust the available information (up from 29% to 46%)Couldn’t find enough information (50%)Choices too expensive (60%)
Business as usual emissions are continuing to grow
ClimateWorks Australia 2010
Low Carbon Growth Plan for Australia
• Lowest cost / best value opportunities to reduce emissions
• From society and individual investor perspective
• Barriers to capturing the opportunities
• Policies and other measures to overcome the barriers and capture opportunities
• Prioritised roadmap of action
Overall Key Findings
Australia has the potential to achieve GHG emissions reductions of 249 MtCO2e (25% below 2000 levels) at a low average cost in the next ten years
• The average cost in 2020 is the equivalent of $185 per household
Reducing GHG emissions can be profitable for businesses
• 22% of the opportunities are profitable to investors today
A combination of a carbon price and targeted actions is required to achieve Australia’s full potential of low cost emissions reductions
A portfolio of prompt action is required
• There are 54 practical actions – no silver bullet!
• Some can be implemented now; others need attention from government and business to ensure they are implemented by 2020
14
Commercial retrofit energy waste reduction
Petroleum and gas maintenance
Pasture and grassland management
Residential appliances and electronics
Commercial retrofit HVAC
10050 1500 200 250
Active livestock feeding
Gas CCS new build
Solar PV (centralised)
Chemicals processes and fuel shift
Anti-methanogenic treatments
Wind offshore
Other industry energy efficiency
Commercial new builds
Lowest cost opportunities to reduce emissions by 249 Mt CO2e1
Commercial retrofit lighting
Residential lighting
Reforestation of marginal land with timber plantation
Mining VAM oxidation
Cement clinker substitution by slag
Coal to gas shift (increased
gas utilisation)
1 Includes only opportunities required to reach emission reduction target of 249 Mtpa (25% reduction on 2000 emissions); excludes opportunities involving a significant lifestyle element or consumption decision, changes in business/activity mix, and opportunities with a high degree of speculation or technological uncertainty
Residential new builds
Mining energy efficiency
Diesel car and light commercial efficiency improvement
Aluminium energy efficiency
Reforestation of marginal land with environmental forest
Commercial elevators and appliances
Petrol car and light commercial efficiency improvement
Reduced cropland soil emissions
Commercial retrofit insulation
Cogeneration
Operational improvements to existing coal plant thermal efficiency
Reduced T&D losses
Cropland carbon sequestration
Degraded farmland restoration
Coal CCS new build with EOR
Capital improvements to existing gas plant thermal efficiency
Solar thermal
Biomass/biogas
Biomass co-firing
Onshore wind (marginal locations)
Improved forest management
Geothermal
Coal to gas shift (gas new build)
Onshore wind (best locations)
Strategic reforestation of non-marginal
land with environmental forest
SOURCE: ClimateWorks team analysis (refer to bibliography)
Reduced deforestation and regrowth clearing
Commercial retrofit water heating
Operational improvements to existing gas plant thermal efficiency
Coal CCS new build
2020 GHG emissions reduction societal cost curve
Emissions reduction potential
MtCO2e per year
IndustryPower
TransportBuildings
ForestryAgriculture
Cost to society
A$/tCO2e
-50
-250
-200
-150
-100
50
200
150
100
0
15
7
54
25
-99
-48
-60
25
Australian 2020 emissions reduction potential by sector1
1 Includes all emission reduction opportunities required to achieve 249Mtpa
249
Volume
MtCO2e
Average cost per tonne
Real 2010 A$
Power
Forestry
Industry
Buildings
Agriculture
Transport
Total
Example opportunities
Renewables
Coal-to-gas shift
Reforestation
Reduced deforestation
Industrial energy efficiency
Ventilation air methane oxidation
Commercial retrofits
Residential new builds
Degraded land restoration
Reduced deforestation
Combustion vehicle efficiency
Hybrids
SOURCE: ClimateWorks team analysis, derived from 2020 GHG emissions reduction cost curve (exhibit 4)
19
87
25
-90
-25
-194
24
Societal Investor
16
Exhibit 15
-150
-100
50
200
150
100
0
-250
-50
-200
10050 1500 200 250
22% 54 Mt -$103 41% 102 Mt $18 37% 93 Mt $90
SOURCE: ClimateWorks team analysis, derived from 2020 GHG emissions reduction cost curve (exhibit 4)
GHG reduction, MtCO2ePercent of total opportunity
Average cost, A$/tCO2eKey investor cost curve metrics
Profitable1 Moderate cost Higher cost
Emissions reduction potential
MtCO2e per year
IndustryPower
TransportBuildingsForestryAgricultureCost to an investor
A$/tCO2e
1 In this report, profitable is defined as positive return on incremental invested capital and operating expense (excluding transaction or policy implementation costs)
17
2020 Buildings GHG emissions reduction investor cost curve
-300
300
500
600
5 252015
400
-200
-100
100
0 10
200
0
Cost to an investor
A$/tCO2e
Commercial retrofit electronics
Commercial retrofit HVAC
Commercial retrofit appliances
Commercial new builds elevators and appliances
Residential appliances and electronics
Residential lighting high efficiency halogen
Residential new builds to 7.2 stars
Commercial new builds
Commercial retrofit insulation
Residential building envelope advanced
Residential building envelope
Residential HVAC
Commercial retrofit water heating
Commercial retrofit energy waste reduction
Commercial retrofit lighting
Residential lighting CFLs to LEDs
Reduction potential
MtCO2e per year1 Higher cost opportunities not required to meet target emissions of 25% below 2000 levels
SOURCE: ClimateWorks team analysis, derived from 2020 GHG emissions reduction cost curve (exhibit 4)
Commercial retrofit cooking and refrigeration
ResidentialCommercialNew buildsAdditional potential1
18
1 Commercial buildings represent 58% of the total 28 MtC02e opportunity in the Buildings sector, with residential new builds comprising the remaining 11.8 MtC02e of the total opportunitySOURCE: ClimateWorks team analysis, derived from 2020 GHG emissions reduction cost curve (p.9)For underlying numbers, see cells AA24:AJ33 in supporting spreadsheet.
A total of 16.3 MtCO2e emissions reduction is possible in commercial buildings1, accessible across
all sub-sectors and technologies by 2020
0.7
Wholesale 0.9
Other 1.0
Health 1.1
Accommodation 1.2
Food retail 1.3
Community 1.4
Education 1.7
Non-food retail 3.2
Offices 3.8
Food service
Emissions reduction opportunity in commercial buildings retrofits
MtCO2e, 2020 estimates
23%
20%
11%
9%
8%
7%
7%
6%
6%
4%
100%
% of total
opportunity
Rationalisation
Appliances
Electronics
Lighting
Refrigeration
Cooking
Water heating
HVAC
Insulation
Positive interaction HVAC
16.3Total
42%
39%
36%
29%
40%
37%
34%
33%
38%
33%
37%
Energy savings% of BAU case, 2020
19
2020 Industry GHG emissions reduction investor cost curve
20
150
25
50
-100
4035
Cost to an investor
A$/tCO2e
-250
200
5
300
200
-150
0 30
250
15
100
-200
-50 10
Other industry efficiency
Cement energy efficiency
Chemicals cogeneration
Mining operational/controls improvements
Food, beverage and tobacco energy efficiency
Chemicals motor systems
Pulp, paper and print energy efficiency
Aluminium smelting energy efficiency existing technologiesOther industry cogeneration
Mining equipment improvements known technologies
Iron and steel cogeneration (flat products)
Petroleum and gas maintenance
Iron and steel cogeneration (long products)Mining VAM oxidation
Iron and steel coke substitution
Petroleum and gas energy efficiency
Cement clinker substitution by slag
Chemicals processesAluminium smelting new technologies
Remote area power
1 Higher cost opportunities not required to meet target emissions of 25% below 2000 levels
SOURCE: ClimateWorks team analysis, derived from 2020 GHG emissions reduction cost curve (exhibit 5)
Fuel shiftIron and steel smelt reduction
Iron and steel energy efficiency
Reduction potential
MtCO2e per year
Other
Cogeneration
Energy efficiency
Additional potential1
2020 GHG emissions reduction opportunities for rural landowners
21
0 15 120
-50
-100
-150
604530 10575 900
550
50
Cost to society
A$/tCO2e
Improved pasture management
Reduced deforestation and regrowth clearing
Improved forest management
Reduced cropland soil emissions
Active livestock feeding
Reforestation of marginal land with timber plantation
Natural grassland management
Anti-methanogenic treatments
Onshore wind (best locations)
Onshore wind (marginal locations)Restoration of degraded cropland
Biomass power
Restoration of degraded natural grasslandsRestoration of degraded improved pastures
Strategic reforestation of non-marginal land with environmental forests
Cropland carbon sequestration
Reforestation of marginal land with environmental forests
Biofuels
SOURCE: ClimateWorks team analysis, derived from 2020 GHG emissions reduction cost curve (exhibit 4)
Large articulated truck efficiency improvement
Emissions reduction potential
MtCO2e per year
Agriculture
Forestry
Power
Transport
If sustainability is so good –why aren’t we doing it?
If sustainability is so good why don’t we do it?
• We don’t charge for externalities (pollution)
– Need a price on carbon
• Access to capital
• Market structure
• Lack of information
• Lack of skills and education
• Non-economic reasons
• Human psychology
-450
200
200
-450
Impact of carbon price on investor economics
Investor cost curve without
carbon
price
Investor cost curve with
carbon
price
(A$69/t1)
1 Carbon price in 2020 of A$69 per tonne based on Treasury Garnaut -25% estimate (Australia’s Low Pollution Future) converted to 2010 dollars
54 Mt
SOURCE: ClimateWorks team analysis, derived from 2020 GHG emissions reduction cost curve (exhibit 4)
Tonnes available at internal rate of return (IRR) above cost of capital
Change in tonnes available at IRR above cost of capital
199 Mt
3.7X
25
Societal cost
A$/tCO2e
-60
-180
-120
120
Capital intensity
Capex/tCO2e
Buildings
Industry
Power
Transport
Forestry
Agriculture
Capital intensity of opportunities by sector2020 capital intensity and emissions reduction cost
Relatively high capital intensity restricts the capture of otherwise profitable opportunities
Size of bubble represents emissions reduction potential of sector
SOURCE: ClimateWorks team analysis, derived from 2020 GHG emissions reduction cost curve (exhibit 4) 26
Capital constraints and investment priorities
Barriers
• Banks reluctant to offer loans
• Long payback periods
• Not raising funds for core business – finite access to capital
• Investment hurdle rate too high
Tools to overcome
• Third party funding
• Loan repayments collected through utility savings
• Energy performance contracts
• Property levies (USA)
Market structure
Barriers
• Split incentives
• Lack of project scale -increases transaction costs
• Long decision cycles
• Availability of equipment
• Reliability of savings estimates
• Non-market electricity pricing
Tools to overcome
• Energy service contracting and leasing contracts
• Aggregation (bundling) of small projects
• Facilitating competitive market
• Improved pricing regulation
Lack of information, skills and education
Barriers
• Information gaps
• Don’t trust information
• Difficulty in measuring (egsoil carbon)
• Inadequate skills (eg how to use equipment efficiently)
• Lack of understanding of sustainability principles
Tools to overcome
• Research and development funding
• Awareness campaigns
• Peer based campaigns and trusted sources
• Mandatory labeling and energy performance disclosure
• Skills development and education for sustainability
Sustainable businesses need new skills
• “Achieving the transition to a low carbon sustainable economy will require a massive mobilisation of skills and training.” - CSIRO Report 2008
• ‘Green collar’ skills include: planning and design, entrepreneurship, building and project management, and specific expertise e.g architecture, engineering
Skills: also need a new mindset
• Need flexibility and ability to adapt - not possible to predict exactly what the jobs will be or the impact of climate change
• Need to have skills and values sympathetic to the environment and generic skills such as sustainable approaches, innovation and problem solving
Non-economic factors
Barriers
• Management tradition and habit
• Long term procurement arrangements
• Other goals of decision makers (eg staff comfort)
• Administrative structures (egbuilding management decisions separate from operating costs management)
Tools to overcome
• Leadership
• A coordinated sustainability strategy
• Sustainability auditing and reporting
• Public disclosure
Sustainability: the problem of human psychology
Why climate change doesn’t prompt behaviourchange
Human brain evolved to respond to threats that
• Involve other humans
• Violate our moral sensibilities
• Are immediate: clear and present danger
• Can be appreciated by our senses
Daniel Gilbert
Professor Psychology
Harvard
Why sustainability and Climate Change don’t rate
• Long term climate hard to detect from personal experience
• Risks (and benefits of mitigating) are in the future - heavily discounted
• Many of the risks are remote - someone else’s problem
• Cultural and political attitudes heavily influence climate attitude
• Challenge to the status quo:
» need to change many things about modern life
» Challenges growth paradigm
• Finite pool of worry
Ways to encourage behaviour change
• A price on carbon and economic incentives
• Targeted polices to overcome structural barriers
• New technologies that make behaviour change easy
• Smart regulation
• Providing information
• Better communication and social marketing
• Better understanding of psychology » Show collateral benefits of action» Competition and comparison